Cisco, Motorola, and Netgear teamed up to stop Innovatio IP from suing hotels.

Innovatio IP Ventures is one of the most controversial patent trolls to emerge in the past few years. Like the oft-condemned Lodsys, Innovatio is asking for relatively small payouts from a large number of targets. But Innovatio's campaign is even broader than other hated trolls like Lodsys: the company claims nothing less than a patent claim on using Wi-Fi.

In 2011, Innovatio started suing chain hotels and even local coffee shops, saying they infringed 17 patents that cover the use of Wi-Fi. Innovatio sued hundreds of businesses and has reportedly sent out more than 8,000 letters demanding license fees, generally ranging from $2,300 to $5,000. Instead of going after companies that make routers like Cisco, Innovatio targeted small businesses that simply use Wi-Fi, an increasingly common pattern.

The lawyer behind the Wi-Fi patent suits, Matthew McAndrews of Niro Haller & Niro, gave an interview when the campaign started in fall 2011.

“We want you to continue to use this technology, we just want our client to get his due share,” McAndrews said. “This is not a seat-of-the-pants, fly-by-night shakedown.” Household Wi-Fi was off-limits, he said—for now.

The idea that corner coffee shops were going to be hit up for thousands of dollars for using Wi-Fi, and that private homes were only off-limits as part of a "strategic decision," got some media attention, especially in Chicago, where Innovatio's lawyers and many of the targets are based.

The lawyers behind Innovatio responded by doubling down on their assertions. Prominent patent litigator Ray Niro defended the patents publicly in March 2012, saying they were connected to two pioneering inventors, Ronald Mahany and Robert Meier, whom he called the "fathers" of WLAN.

Manufacturers hit back with a novel strategy

Innovatio deliberately avoided targeting the actual manufacturers of Wi-Fi equipment, preferring to sue end-users. But in October, Cisco, Netgear, and Motorola teamed up to file an 81-page lawsuit [PDF] seeking to shut down Innovatio's patent-trolling project once and for all. Not only were the patents invalid, but the suit alleged Innovatio's whole campaign was a violation of the RICO anti-racketeering law. That law is more commonly used against crime families than patent holders.

"Unlike suppliers of the accused technologies, many of Innovatio’s licensing targets are small businesses that do not possess the resources or experience to investigate and challenge Defendants’ illegal licensing activities as alleged herein," the complaint stated. The patents had all kinds of problems, the manufacturers alleged. One big one: the patents originally came from Broadcom, and the manufacturers had already paid for licenses to them. It all amounted to a scheme to "unlawfully tax" the 802.11 Wi-Fi standard and "prey upon end users" not involved in creating or distributing the technology.

The litigation revealed some interesting information about Innovatio. The company was created in February 2011 by Noel Whitley, a former Broadcom IP lawyer who lives in Orange County, California. Whitley and his associates sent out more than 8,000 threatening letters to targets in all 50 states.

In the end, though, the idea of shutting down a patent troll with a RICO claim didn't work out. US District Judge James Holderman, who is overseeing the case, issued a 34-page order [PDF] last week throwing out the RICO claims.

At the end of the day, patent trolls are entitled to First Amendment rights, and "Innovatio's campaign is protected petition activity under the First Amendment." In order for Innovatio's letters to be illegal, it would have to be actually engaged in "sham litigation," with the letters sent in bad faith.

That's not the case here. One by one, Holderman shot down the manufacturers' allegations. Their argument that the targets were covered by existing licenses, for example, doesn't amount to a RICO claim, because Innovatio had a "reasonable expectation" that at least some of the products they were going after weren't licensed. "Innovatio had no way of knowing which targets may have been using only products with Broadcom components," Holderman noted.

Holderman will allow some contract claims to proceed against Innovatio, but that's it.

In an e-mailed statement, Cisco General Counsel Mark Chandler said the company was pleased about being able to go forward with the contract claim. "We are, however, disappointed the court interpreted the right to 'petition the government' so broadly as to immunize from RICO liability Innovatio’s misleading statements," said Chandler. Innovatio's goal is to make thousands of businesses that "are already fully licensed" pay much more. "We do not believe those misleading demands should be immune from liability, and we will review the steps available from here to vindicate our customers' rights."

For hotels, time to pay up: $5,000 apiece

A few days after Holderman's order came out, Innovatio lawyers filed a lengthy series of notices regarding the dozens of hotels it is preparing to ask for a "default judgment" against, which suggests those hotels haven't yet defended themselves against the infringement allegations. Now there's a hearing approaching next week, on February 21, and Innovatio has put the hotels on notice that it intends to ask for judgments against them of $5,000 each.

The hotels in this batch are all in Illinois and include: Wyndhams in Glenview, Schaumburg, and Wadsworth; Ramadas in Galena, Glendale Heights, Freeport, Waukegan, Bolingbrook, South Beloit, Joliet, and Chicago; Days Inn in Waukegan, Naperville, Morris, Niles, Woodstock, and Chicago; and Super 8s in Willowbrook, Northlake, Elgin, Bridgview, Dixon, Elk Grove Village, Peru, Yorkville, Aurora, Woodstock, Chicago, and elsewhere.

86 Reader Comments

Why should customers who, in good faith, purchased equipment from big manufacturers have to defend their legal use from someone, whom by all rights, is suing the wrong end of the transaction. It's "patently" ridiculous.

So, this troll can't be stopped using the RICO law, but I would think they could easily be stopped by one of those public organizations that protect us (EFF et al.) by using the following fact (if it is true):

Quote:

One big one: the patents originally came from Broadcom, and the manufacturers had already paid for licenses to them.

This creates a wholly unworkable position for consumers, who lack the resources and should not have to investigate the licensing status of everything they buy. The law needs to exclude them from liability and limit it to manufacturers only. What's next - I buy the wrong celhone and suddenly I find myself on the wrong end of a lawsuit for something I had no control over?

I can see it now, being required to buy patent liability insurance to buy anything.

Why doesn't this article make any mention of the fact the judge ruled the contract claims may move forward?

As written in the decision, if the manufactures are successful on the contract claims then:

"...had Innovatio offered such a license to the Manufacturers, it likely would not, under the doctrine of exhaustion, have any viable infringement claims against the customers who purchased the Manufacturers’ products... The court will thus allow Netgear’s and Motorola’s contract claims to proceed."

Page 32 of the decision.

It is typical for a plaintiff to assert many claims in a complaint with an expectation that the judge will dismiss some of those claims. The fact the contract claims are allowed to go forward, coupled with the fact that if the manufactures are successful on those claims, will prevent Innovatio from suing the targets, aka the hotels and coffee shops. How is that "unscathed" as the title says?

This creates a wholly unworkable position for consumers, who lack the resources and should not have to investigate the licensing status of everything they buy. The law needs to exclude them from liability and limit it to manufacturers only. What's next - I buy the wrong celhone and suddenly I find myself on the wrong end of a lawsuit for something I had no control over?

^ This. I can see why they would go after small businesses instead of Netgear and Cisco, despite how deplorable it is. Netgear and Cisco have the money to fight whereas small businesses don't, so the small businesses are more likely to pay the 5,000 bucks. It's the patent trolls trying to maximize revenue and profit. A few thousand letters cost a few thousand bucks, they all pay the licensing fees, you make loads of profit. Target Cisco, they're likely to fight and if you don't win, you're out a few million dollars as lawyers aren't cheap.

This creates a wholly unworkable position for consumers, who lack the resources and should not have to investigate the licensing status of everything they buy. The law needs to exclude them from liability and limit it to manufacturers only. What's next - I buy the wrong celhone and suddenly I find myself on the wrong end of a lawsuit for something I had no control over?

^ This. I can see why they would go after small businesses instead of Netgear and Cisco, despite how deplorable it is. Netgear and Cisco have the money to fight whereas small businesses don't, so the small businesses are more likely to pay the 5,000 bucks. It's the patent trolls trying to maximize revenue and profit. A few thousand letters cost a few thousand bucks, they all pay the licensing fees, you make loads of profit. Target Cisco, they're likely to fight and if you don't win, you're out a few million dollars as lawyers aren't cheap.

Put simply, we need a law that extents patent exhaustion to unlicensed patents as well - you can only go after the manufacturer of the device and not end users or any other intermediary (distributor, retailer, etc).

This creates a wholly unworkable position for consumers, who lack the resources and should not have to investigate the licensing status of everything they buy. The law needs to exclude them from liability and limit it to manufacturers only. What's next - I buy the wrong celhone and suddenly I find myself on the wrong end of a lawsuit for something I had no control over?

^ This. I can see why they would go after small businesses instead of Netgear and Cisco, despite how deplorable it is. Netgear and Cisco have the money to fight whereas small businesses don't, so the small businesses are more likely to pay the 5,000 bucks. It's the patent trolls trying to maximize revenue and profit. A few thousand letters cost a few thousand bucks, they all pay the licensing fees, you make loads of profit. Target Cisco, they're likely to fight and if you don't win, you're out a few million dollars as lawyers aren't cheap.

Put simply, we need a law that extents patent exhaustion to unlicensed patents as well - you can only go after the manufacturer of the device and not end users or any other intermediary (distributor, retailer, etc).

I agree. However, the patent trolls will try to forbid this as it will cut into their profit margins (which most people don't give a damn about for them anyways). I can see some senators and representatives not voting for this anyways because it "is anti-business and more regulation." They won't vote for it until they themselves get some of these letters.

It was a good faith effort on the part of the manufacturers to protect their customers and their own business. They fought the good fight as well as the trial judge allowed them to.

I wonder if eventually these trolls won't try and shake down the wrong people and end up with a non-judicial response.

I totally agree, everyone knows these guys are just using the system to get rich. At $5000 a piece how many hotels do you have to own before you starting doing a cost/benefit analysis on if its cheaper to pay the fine, or have these guys killed?

The ruling, though unfortunate, is correct. As long as the USPTO is willing to shell out absurd patents, trolls will have a legal standing to make a good-faith argument of patent infringement.

The solution to this problem doesn't lie in the courtroom, it lies in the legislation -- terrifying though that may be. The laws need to change to prevent trolling, preferably through extending patent exhaustion and to have a base level of practicability. Not to mention the need for USPTO technology patent reform. It's no wonder we run into problems when we have biologists drafting software patents and physicists approving them.

Can someone explain why it's legal to go after motels and such for using Wifi instead of the companies that produce the equipment?

Patents are a strict liability infringement issue. In the same sense that Samsung would be liable for installing supplier-provided LCD panels that use patent-infringing technology, motels are liable for implementing WiFi. On paper, at least. The idea is that the businesses are using the patent to their own financial gain, regardless of whether they know that the product infringes, and so they are unfairly profiting off of technology that the supplier should have licensed in the first place and are thus not entitled to the profits reaped by use of that technology.

In applications like this, it's much more dubious. But the two bigger problems from strict liability are 1) trolling, generally, and 2) very bad patents being issued.

That's not the case here. One by one, Holderman shot down the manufacturers' allegations. Their argument that the targets were covered by existing licenses, for example, doesn't amount to a RICO claim, because Innovatio had a "reasonable expectation" that at least some of the products they were going after weren't licensed. "Innovatio had no way of knowing which targets may have been using only products with Broadcom components," Holderman noted.

If you're suing for violating your patent, you damn well better be sure the person is using a product that actually has a chance of being in violation.

Innovoatio has (at least should have) an obligation to at least check if the products are unlicensed, as the user has no way of knowing. It puts the user in a huge disadvantaged position.

Can someone explain why it's legal to go after motels and such for using Wifi instead of the companies that produce the equipment?

Patents are a strict liability infringement issue. In the same sense that Samsung would be liable for installing supplier-provided LCD panels that use patent-infringing technology, motels are liable for implementing WiFi. On paper, at least. The idea is that the businesses are using the patent to their own financial gain, regardless of whether they know that the product infringes, and so they are unfairly profiting off of technology that the supplier should have licensed in the first place and are thus not entitled to the profits reaped by use of that technology.

In applications like this, it's much more dubious. But the two bigger problems from strict liability are 1) trolling, generally, and 2) very bad patents being issued.

But it's BS. If I buy a product that is intended to do X, then do X with the product it's the manufacturer who should be liable for patent infringement.

That's not the case here. One by one, Holderman shot down the manufacturers' allegations. Their argument that the targets were covered by existing licenses, for example, doesn't amount to a RICO claim, because Innovatio had a "reasonable expectation" that at least some of the products they were going after weren't licensed. "Innovatio had no way of knowing which targets may have been using only products with Broadcom components," Holderman noted.

If you're suing for violating your patent, you damn well better be sure the person is using a product that actually has a chance of being in violation.

Innovoatio has (at least should have) an obligation to at least check if the products are unlicensed, as the user has no way of knowing. It puts the user in a huge disadvantaged position.

This x1000. How is it at all legal to sue without some actual evidence that infringement has occurred?

The ruling, though unfortunate, is correct. As long as the USPTO is willing to shell out absurd patents, trolls will have a legal standing to make a good-faith argument of patent infringement.

Please note that this has nothing to do with the quality of patents. This shakedown will work even better on high quality and valid patents. It's a shakedown of people and companies that acted in good faith and it's criminal (unfortunately only figuratively).

I like the idea of patent exhaustion for unlicensed products. Force the patent holder to go to the top of the chain and let that person or company defend it's use.

Can I patent the concept of patent-trolling, and then claim money from all of these companies?

What patent trolls downvoted this? We should all get in on that.

I think it was down-voted because it appears in the comments thread below nearly every patent troll article on Ars. It’s as expected as people who don’t understand the difference between theories and laws in a thread on evolution.

These are crazy cases. If someone comes out of the woodwork claiming some patent on part of my car's combustion engine, I'm not going to pay a dime simply because I'm the one driving it.

Even if they were valid, which they probably aren't, it'd be on the companies.

Trolls like this go after the little guy because even if big guys catch wind and put an end to it, all of the little guys have likely coughed up millions of dollars, thus funding further suits once the big companies step in.

You reap what you sow. You want software patents, you get software patents. You get the good, the bad, and the ugly. In this case, you have the bad (suing hotels) and you'll soon get the ugly (suing end-users). This is what you get for not thinking things through when software patents were allowed in the first place. If you don't like what's happening, petition your congressional representatives to disallow software patents.

That being said, you'd better do it soon. Once the patent troll lawyers get enough power, they'll make substantial donations to Congress and then anti-software patent legislation will never pass.

Reap the whirlwind. This is what happens when you spend more time tweaking your social status via Facebook, Twitter, and Tumbler via your smart devices than putting them down for a while and thinking about the world around you.

Solution: Find out where U.S. Senators and Reps are having vacation at hotels and cafes.. if they have middle school/high school aged children even better. Ensure the kids are using the wifi network... then shut it off abruptly.. apologize but publicly state that this is an effort to protect the hotel from infringement suits.

If Innovatio IP can sue because it has the benefit of good faith that at least some of the products it says infringe its patents, then consumers should be given the benefit of the doubt that they were granted the license to use the product they bought. If the manufacturers implied that the devices they were selling was an all-in-one solution, it's the manufacturer [edit: or IEEE, the consortium that oversees the 802.11 standard] who is arguably acting in bad faith, not the end user. All these lawsuits should be thrown out, although, I don't think Innovatio did anything that would trigger double jeopardy protection if it needed to go after the end user later, but that would probably be a bizarre scenario where that would happen.

Why doesn't this article make any mention of the fact the judge ruled the contract claims may move forward?

As written in the decision, if the manufactures are successful on the contract claims then:

"...had Innovatio offered such a license to the Manufacturers, it likely would not, under the doctrine of exhaustion, have any viable infringement claims against the customers who purchased the Manufacturers’ products... The court will thus allow Netgear’s and Motorola’s contract claims to proceed."

Page 32 of the decision.

It is typical for a plaintiff to assert many claims in a complaint with an expectation that the judge will dismiss some of those claims. The fact the contract claims are allowed to go forward, coupled with the fact that if the manufactures are successful on those claims, will prevent Innovatio from suing the targets, aka the hotels and coffee shops. How is that "unscathed" as the title says?

I added a sentence about the contract claim, but I don't think it changes the overall situation too much. The headline is accurate—they did emerge from the racketeering suit unscathed.

Solution: Find out where U.S. Senators and Reps are having vacation at hotels and cafes.. if they have middle school/high school aged children even better. Ensure the kids are using the wifi network... then shut it off abruptly.. apologize but publicly state that this is an effort to protect the hotel from infringement suits.

It is cases like this where the trolls and the Trolling Attorneys suddenly find themselves as part of some building foundation or Bridge support project would be a very good thing. This is so far BEYOND B.S. it defies words. If there were ways to legally and permantently drive the trolls and attorneys permanently insane it should be considered. Where's Anon when you need 'em?

You reap what you sow. You want software patents, you get software patents. You get the good, the bad, and the ugly. In this case, you have the bad (suing hotels) and you'll soon get the ugly (suing end-users). This is what you get for not thinking things through when software patents were allowed in the first place. If you don't like what's happening, petition your congressional representatives to disallow software patents.

That being said, you'd better do it soon. Once the patent troll lawyers get enough power, they'll make substantial donations to Congress and then anti-software patent legislation will never pass.

Reap the whirlwind. This is what happens when you spend more time tweaking your social status via Facebook, Twitter, and Tumbler via your smart devices than putting them down for a while and thinking about the world around you.

The petition has been done many times with little to no success. I have signed many over the years to remove the law or reform it. None of them have hit 25,000 signatures needed for action to occur.

Maybe its time ARS and a few other tech blogs should get together and link one petition across all sites and put it in their featured story feed for all to sign. They seem to share stories, but not all of us read all the partner stories. Its a way to get all us tech readers to sign.